A long-lived asset may consist of several different and significant physical components. If a long-lived asset comprises two or more significant components, with substantially different useful lives, a question arises as to whether each component should be treated as a separate unit of account for depreciation purposes. US GAAP does not include a requirement to use component depreciation, but it is permitted. A reporting entity should make an accounting policy election as to the level of disaggregation to be applied when recording a long-lived asset.
The principles of component accounting were described in the proposed PPE SOP (see PPE 1.1). While not authoritative, the PPE SOP may be considered by reporting entities when identifying components.

Excerpt from paragraph 49 of the proposed PPE SOP

A component is a tangible part or portion of PP&E that (a) can be separately identified as an asset and depreciated or amortized over its own separate expected useful life and (b) is expected to provide economic benefit for more than one year. If a component has an expected useful life that differs from the expected useful life of the PP&E asset to which it relates, the cost should be accounted for separately and depreciated or amortized over its separate expected useful life.

A reporting entity using component depreciation should identify the components at the time of the acquisition or construction of the long-lived asset. The total capitalized costs of the long-lived asset should be allocated to components either on a specific identification basis or based on relative fair value. If it is not practicable to determine the specific cost or relative fair value of components, capitalized costs may be allocated based on another reasonable method, such as relative square footage for real estate.
If one significant part has a useful life and a pattern of consumption that is the same as or similar to those of another part of the same asset, the two parts may be grouped together as one component for depreciation purposes.

4.4.1 Component replacements when using component depreciation

If a component that is separately identified and depreciated is replaced, the replacement should be capitalized at the time of its installation if the capitalization criteria have been met. The net book value of the component that was replaced, if any, should be charged to depreciation expense in the period it is replaced.
A question arises as to whether the reporting entity can capitalize a replacement that previously had not been accounted for as a separate component. If the replacement meets the capitalization criteria, the reporting entity can make an accounting policy election to either (1) charge the cost of the replacement to expense in the current period or (2) capitalize it as a separate component and charge the net book value of the component that was replaced to depreciation expense when it is removed form service. The proposed PPE SOP (see PPE 1.1) discusses estimating the net book value of a replaced component under the option (2).

Excerpt from paragraph 53 of the proposed PPE SOP

If not separately identifiable in the accounting records, the estimated net book value of an item to be replaced should be calculated by estimating the previously capitalized costs of the replaced PP&E component and subtracting an estimate of accumulated depreciation. The estimate of accumulated depreciation is calculated using the same depreciation method and expected useful life previously used to depreciate the total PP&E asset to which the component relates.

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